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Newsflash: Higher wages don’t come for free

Business 101: When paying an employee, you have to pay in line with their productivity.

  • If you underpay, you lose the employee.
  • If you overpay, you run up losses and lose your business.
  • If you raise the hourly wage, you must get more from each employee hour – and you must cut the hours/employees that won’t or can’t rise to the new, higher bar.

You may have seen the following last week, but I didn’t want to let it pass without comment. After raising wages over the last 18 months, Starbucks and its employees have been learning some lessons the hard way:

An online petition accus[es] Starbucks Corp of “extreme” cutbacks in work hours at its U.S. cafes…

[Starbucks] recently introduced technology that allows customers to order and pay from mobile devices. That service aims to…reduce bottlenecks in stores. [ed: reducing the number of employees needed per shift]

Starbucks has a software system that determines labor needs based on business trends…
Comments on the petition painted a picture of broad discontent at the company…
…many signers say they noticed cutbacks in U.S. staffing hours…
One central California store has seen its labor allotment shrunk by about 10 percent, even though sales are up…
“No matter what we do to save on labor at my store, the system tells us EVERY SINGLE DAY that we are at least 8 hours over in labor for the day and have to cut even more,” wrote [a petition] signer…

Like other restaurants and retail companies, Starbucks is wrestling with the effects of local minimum wage increases…tipping has fallen substantially amid broad customer adoption of the “Starbucks Rewards” program, which allows customers to pay with a loyalty card or mobile phones.

Suppose Starbucks gives in and boosts employee hours (arbitrarily; without a matching, widespread sales & productivity gain). What happens then? Operating budget overruns and closing stores. And/or price increases, declining sales, and closing stores. Perhaps eventually, a closing company. Thanks, Blue State lefties!

UPDATE: This oldie from The Guardian in 2014 may help us to see the problem:

Autumn Brown is in no doubt about why she struggles…
Brown is an ardent supporter of legislation, now being considered by the city council, to raise the minimum wage in Seattle to $15 an hour…
“It would give me a lot more security,” she said. “These huge chain companies employ so many people, if the minimum wage were to go right to $15 that would bring so many people out of a bad situation.”

So, according to Brown, she struggles because “these huge chain companies” are mean and refuse to give people $15/hour. But:

Brown works behind the counter of a Starbucks in Seattle…
Brown cannot predict her income, because her hours change week by week. “It’s supposed to be full-time but they’ve cut my hours a lot recently,” she said…

This was before Starbucks’ 2015/2016 wage hikes and new cuts to hours.

The poor thing can’t, it seems, make the connection between wages and productivity. She can’t conceive that making coffee drinks might be low-end work, not worth $15/hour and full-time scheduling. She can’t conceive that forced/artificial wage increases will give her *less* security or perhaps kill her job.

I guess her schooling never covered cause-and-effect? Surely employers prefer to hire people who understand cause-and-effect?

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6 Comments

  1. Her schooling taught here that the rich got rich on the backs of the poor, so, raising the minimum wage is just another means to force those evil rich people into giving the money back.

    In other words, they teach a 150 year old economic theory which has proven false, again and again, much to the suffering of billions, rather than a 250 year old economic theory which has resulted in growing wealth across the board.

    Comment by Craig Smith — July 5, 2016 @ 6:03 am - July 5, 2016

  2. The ACA is partially responsible for the fewer full-time worker positions.

    I have also read reports that in areas where the minimum wage went to $12, the number of hours that employees wanted to work dropped so that they are making the same amount of money as before the hike but are working fewer hours (got to keep those benefits).

    Comment by TnnsNe1 — July 5, 2016 @ 11:03 am - July 5, 2016

  3. The $15/hour minimum wage has already been in place in SeaTac (where our airport is located for well over a year. It was something originally pushed by the unionized baggage handlers and TSA workers. (The TSA employees were not able to get the bump in increase because of their federal union status). A reporter did an article a while back expecting people to be thrilled with it’s implementation. He was surprised to find that was not the case. People interviewed (hotel workers) were getting less tip money, and they lost employer provided benefits such as free parking and free meals from the hotel restaurant. They were actually taking home less money before the wage increase.

    Also, in Seattle, where the $15/hour minimum wage is being increased incrementally, some employees have been asking to have their hours reduced so they don’t go over income limits to retain subsidized housing, foodstamps, Medicaid, etc. There has also been a few closures of old, venerable iconic Seattle restaurants, and less new ones opening up. The suburbs South and East of Seattle, have had an increase in new restaurants opening. This is why people are screaming for a federally mandated $15/hour minimum wage–so that businesses are forced to stay and pay!

    Meanwhile automated kiosks and even burger flipping machines are making their way into fast food restaurants.

    Comment by runningrn — July 5, 2016 @ 1:19 pm - July 5, 2016

  4. Its tax free payments/benefits that count the most. When I did a travel temp job per diem for meals alone was more than what a min wage worker would take home after taxes.

    When you underpay you only lose those that are aware of their value. When I tell women the best way to get a raise is to apply to work somewhere else they don’t believe me.

    Comment by Steve — July 5, 2016 @ 1:54 pm - July 5, 2016

  5. Starbucks is more than a bit of a marvel. It is a niche chain with an enormous cult following. Frankly, I dislike the place. It reeks of pretentiousness. But, it has attainted cult status and it is thriving. So, if they can “show” the world how to be socially conscious by paying high wages and still make their way, more power to them.

    But the basic premise in Adam Smith’s invisible hand is that the customer base will always settle issues of value by revealing what they value most. Price? Quality? Service? Convenience?

    The average person who stands in line at Starbucks and buys their coffee concoctions along with something from the carb case is not shopping for price or service or even convenience. And I would question the quality.

    So, Starbucks is wide open for some other entrepreneur to cut into their ubiquitous availability by having storefronts every two blocks. Or not. I suspect that the Starbucks cultists are over supplied with opportunities to spend too much for the ego boost.

    Starbucks is selling a bunch of “organic” and “fair trade” bunk. They are implying that they rise above the banana republic style colonialist predators who enslave brown people worldwide.

    Well, here is a blurb from a Sumatra outfit which markets to Starbucks, Whole Foods, and many other Progressive retailers:

    Sumatra’s Central Aceh region is known for its rich, earthy balanced coffees with complex aroma. The Gayo Organic Coffee Farmers Association (PPKGO) is acclaimed for producing some of the best. Made up of more than 1,600 growers from 32 different communities, the cooperative is home to five different ethnicities: Gayo, Javanese, Acehnese, Padang & Batak. In a region torn apart by devastating natural disasters & ongoing civil war, PPKGO has been a continuous multi-ethnic inspiration, as it uses its fair trade coffee premiums for building potable water systems, constructing new roads, refurbishing mosques, & the establishment of a credit union.

    Notice to all: there is no “inorganic” coffee. And what passes for “organic” in Sumatra bears no relationship to what passes for “organic” in Hawaii. The tribesmen of Sumarta have been organized by the co-op and their formerly scattered coffee bushes have been gathered into plantations. I particularly love the wording concerning fair trade coffee “premiums.” Those “premiums” are a small profit added to the bidding price to “encourage” care and caution in picking only the ripe berries and sorting out the culls before they are stripped of the beans and the beans are dried in the sun. That is where the bulk of the process of separating quality beans occurs. It is labor intensive because each bush is continually hand picked as the berries ripen. What the pickers get is longer hours of selecting berries to fill the basket to the top. The co-op gets a better wholesale price bid. Now look at Starbucks’ wordsmithing concerning their Sumatra coffee:

    Full-bodied with a smooth mouthfeel, lingering flavors of dried herbs and fresh earth, and almost no acidity. Our roasters love transforming these unpredictable beans from dark coral green to tiger-orange to a rich, oily mahogany, revealing bold flavors that many us of us can’t live without. Coffee from Sumatra is the foundation of our most treasured blends, and something we’ve been honored to share with you for four decades.

    See that? The beans are “unpredictable” so Starbucks tinkers around and “blends” the Sumatra beans with other beans in order to create a taste which ….. they can replicate consistently throughout the year and over the decades. It is a concoction. They even admit the Sumatra beans are merely a “foundation” of an unspecified amount.

    You have to feed the cult the same taste no matter where the cultist drops in for a Starbucks fix. So, Starbucks is not a lick different from Maxwell House, Duncan Donuts, WaWa, Keurig Green Mountain cups or Nescafe. Sure they have their formulated taste, but the fact is that they are selling smoke and mirrors to a crowd that demands to be pampered in a certain way. And they have hit the jackpot in the cult delivery system. Now we will see if the cultists really want to pay the staff more money.

    Comment by Heliotrope — July 6, 2016 @ 7:50 am - July 6, 2016

  6. I dislike the place. It reeks of pretentiousness.

    Then you’ll LOVE some of the other chains that we have in the Bay Area, like Peet’s, Philz, Ritual or Blue Bottle. 🙂 I mean, the Bay Area is so insane that even Starbucks is not enough.

    Comment by ILoveCapitalism — July 6, 2016 @ 9:52 am - July 6, 2016

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